Morning Report: Experts talk about 2020 forecasts

Vital Statistics:

Stocks are flattish this morning as violence continues in Hong Kong. Bonds and MBS are flat as well.

Optimism for a trade deal with China waxes and wanes, and we had some conflicting reports this weekend. CNBC said that the government was disappointed in Trump’s reluctance to roll back tariffs, while the Chinese state media company said Beijing and Washington had constructive talks over the weekend.

The upcoming week has some real-estate related data with housing starts and existing home sales, but nothing much market moving. We will get the FOMC minutes on Wednesday, but the sense in the market is that the Fed is on hold for a while, and probably through the election.

The Fed said the US financial system “appears resilient” in its semiannual report on financial stability. “The current combination of very low credit spreads and high levels of indebtedness among risky nonfinancial corporates, including through leveraged loans, merits heightened vigilance,” Fed Governor Lael Brainard said in a prepared statement. “Over the medium term, the low-for-long environment and the associated incentives to reach for yield and take on additional debt could increase financial vulnerabilities.” They were also critical of cryptocurrencies, warning they could destabilize the system if implemented without regulation and oversight. Wasn’t the whole point of cryptocurrencies to have a medium of exchange that is beyond the reach of governments?

Predictions for 2020:  Rates will remain low, with Fannie Mae predicting the 30 year fixed rate mortgage will end up in a tight range around 3.5% – 3.6%. Home price appreciation will re-accelerate, with home prices rising 5.6% next year versus 3.5% this year. Inventory will remain tight, however especially at the lower price points. “While historically low rates increase buying power and make it more likely for potential buyers to attain their homeownership dream, they also increase the risk of a long-run housing supply shortage, which we predict will continue through 2020 and possibly intensify,” Kushi says. “As first-time buyers lock-in these historically amazing rates and existing owners refinance—in droves in recent months, everyone will stay put and not sell. Where’s the incentive?”

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical View all posts by Brent Nyitray